PR Newswire: news distribution, targeting and monitoring
2014

KongZhong Corporation Reports Unaudited First Quarter 2013 Financial Results

Share with Twitter Share with LinkedIn

BEIJING, May 21, 2013 /PRNewswire/ -- KongZhong Corporation (NASDAQ: KONG), a leading provider of digital entertainment services for consumers in the PRC, today announced its unaudited financial results for the first quarter 2013 financial results.

First Quarter 2013 Financial Highlights:

  • Revenues exceeds guidance – Total revenues for the first quarter of 2013 increased 9.3% from the same period last year and 12.4% from the fourth quarter of 2012 to US$ 47.94 mn, exceeding the guidance range of US$ 45 mn to US$ 46 mn.
  • Gross profit exceeds guidance – Total gross profit declined 0.8% from the same period last year but increased 3.3% from the fourth quarter of 2012 to US$ 18.59 mn, exceeding the guidance range of US$ 17 mn to US$ 18 mn.
  • Net income exceeds guidance – Net income declined 0.8% from the same period last year in 1Q13 but increased 42.6% from the fourth quarter of 2012 to US$ 6.81 mn, exceeding the guidance range of US$ 3 mn to US$ 4 mn. Basic net income per American Depositary Shares ("ADS") was US$ 0.17.
  • Non-GAAP net income exceeds guidance – Non-GAAP net income increased 2.8% from the same period last year and 14.9% from the fourth quarter of 2012 to US$ 8.90 mn, exceeding the guidance range of US$ 5.5 mn to US$ 6.5 mn. Non-GAAP diluted net income per ADS was US$ 0.21 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures").
  • Cash and cash equivalents – As of March 31, 2013, the Company had US$ 185.23 mn in cash and cash equivalents, term deposits, held-to-maturity securities and restricted cash or US$ 4.55 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities and restricted cash.

The Company's Chairman and Chief Executive Officer, Leilei Wang said, "In the first quarter of 2013, we continued to demonstrate strong performance in our Internet games business which now makes up nearly 60% of total revenues and 70% of total gross profits. Since 2012, through our cooperation with overseas and domestic games developers, as well as the restructuring of our internal game development resources, we have established a strong future Internet game pipeline. For example, we continue to make preparations for the upcoming launch of World of Warplanes and Guild Wars 2 to the China market, which is now one of the most anticipated new games in China. Over the long term, to take advantage of opportunities in smartphone games market, we are developing more innovative mobile game products by leveraging our in-house game engine and R&D teams.  We believe that in the following quarters, we will continue to bring new Internet games, as well as mobile games to the market."


For the Three

Months Ended

March 31,

2012

(US$ in thousands)


For the Three

Months Ended

December 31,

2012

(US$ in thousands)


For the Three

Months Ended

March 31,

2013

(US$ in thousands)

Revenues

$43,841


$42,631


$47,937

WVAS

19,116


14,620


15,850

Mobile Games

5,560


4,169


3,706

Internet Games

19,165


23,842


28,381







Sales Tax

$1,381


$1,412


$1,822

WVAS

277


178


211

Mobile Games

86


30


41

Internet Games

1,018


1,204


1,570







Cost of Revenue

$23,713


$23,218


$27,522

WVAS

12,699


10,286


12,024

Mobile Games

3,133


1,737


1,803

Internet Games

7,881


11,195


13,695







Gross Profit

$18,747


$18,001


$18,593

WVAS

6,140


4,156


3,615

Mobile Games

2,341


2,402


1,862

Internet Games

10,266


11,443


13,116







Gross Profit ratio

43%


42%


39%

WVAS

32%


28%


23%

Mobile Games

42%


58%


50%

Internet Games

54%


48%


46%

Revenues

WVAS Revenues

WVAS revenues in 1Q13 were US$ 15.85 mn, a 17.1% decrease from the same period as last year, but an 8.4% increase from 4Q12. Sequentially the WVAS operating environment stabilized compared to prior periods, but we continue to expect the WVAS operating environment to remain difficult in 2013, similar to 2012.

WVAS made up 33.1% of total revenues in 1Q13.

Mobile Games Revenues

Total mobile game revenues in 1Q13 were US$ 3.71 mn, a 33.3% decrease from the same period last year and an 11.1% decrease from 4Q12.

Feature phone mobile games revenues in 1Q13 were US$ 2.37 mn, compared to US$ 2.13 mn in 4Q12 or an 11.2% QoQ increase. Our mobile operator partners continued to implement strict operating policies and continued their de-emphasis of marketing feature phone mobile games. We see these difficulties continuing in 2013 for our legacy feature-phone mobile game business.

Smartphone mobile game revenues in 1Q13 were US$ 1.34 mn, a 34.3% decrease from 4Q12, and representing 36.2% of total mobile game revenues. The decrease in smartphone mobile games revenues was due to a pause in new smartphone game launches in 1Q13 as we continue to transition a portion of our PC MMO game development team onto our internal smartphone game engine. We expect to launch a number of new smartphone games in the 2Q and 3Q 2013 period.  

Total mobile game revenues made up 7.7% of total revenues in 1Q13.

Internet Games Revenues

Internet Game ("Net Game") revenues were US$ 28.38 mn in 1Q13, a 48.1% increase from the same period last year and an increase of 19.0% from 4Q12. Revenues from World of Tanks ("WoT") continued to grow in 1Q13 compared to 4Q12, while revenues from self-developed games and overseas game revenues declined significantly as the Company has re-focused our efforts on domestic game development towards more differentiated Internet game genres.

Domestic Net game revenues were US$ 27.81 mn, a 21.7% increase from 4Q12 and a 53.6% increase from the same period last year. Overseas Net game revenues were US$ 0.57 mn, a 42.5% decrease from 4Q12.

For the 1Q13 3-month period, mainland China online game operations achieved average concurrent users ("ACUs") of 364k and aggregated paying accounts ("APAs") of 950k with quarterly average revenue per user ("ARPU") of RMB184. ACUs in 1Q13 were up 59.6% from the same period last year. 


For the Three

Months Ended

March 31, 

2012


For the Three

Months Ended

December 31, 

2012


For the Three

Months Ended

March  31, 

2013

ACU

228k


300k


364k

APA

744k


832k


950k

ARPU(RMB/Q)

153


173


184

Net game revenues made up 59.2% of total revenues in 1Q13.

Gross Profit

Total gross profit was US$18.59 mn in 1Q13 a slight decline of 0.8% from the same period last year but a 3.3% increase from 4Q12. Total gross margin was 38.8% in 1Q13.

WVAS Gross Profit

WVAS gross profit in 1Q13 was US$ 3.62 mn, a 13.0% decrease from 4Q12. 1Q13 WVAS gross margin was 22.8% compared to 28.4% in 4Q12.

Mobile Game Gross Profit

Mobile games gross profit in 1Q13 was US$ 1.86 mn, a 22.5% decrease from 4Q12. The decrease in smartphone mobile games gross profits was due to a pause in new smartphone game launches in 1Q13 as we continue to transition a portion of our PC MMO game development team onto our internal smartphone game engine. We expect to launch a number of new smartphone games in the 2Q and 3Q 2013 period. 1Q13 mobile games gross margin was 50.3% compared to 42.1% in the same period last year and 57.6% in 4Q12.

Internet Game Gross Profit

Internet game gross profit in 1Q13 was US$ 13.12 mn, a 27.7% increase from the same period last year and a 14.6% increase from 4Q12. 1Q13 Internet game gross margin was 46.2% compared to 53.6% in the same period last year and 48.0%.

Operating Expenses


For the Three

Months Ended

March 31,

2012

(US$ in thousands)


For the Three

Months Ended

December 31,

2012

(US$ in thousands)


For the Three 

Months Ended 

March 31,

2013

(US$ in thousands)

Product development

$4,080


$5,325


$6,136

Sales and marketing

5,712


5,926


4,568

General and administrative

2,862


3,179


2,426

Total operating expenses

$12,654


$14,430


$13,130

Total operating expenses in 1Q13 were US$ 13.13 mn compared to US$14.43 mn in 4Q12.

Product development expenses in 1Q13 were US$ 6.14 mn compared to US$5.33 mn in 4Q12. The increase in product development expenses was due to additional resources and investments made towards our 2013 game pipeline, including our Guild Wars 2 China team.

Sales and marketing expenses in 1Q13 were US$ 4.57 mn compared to US$ 5.93 mn in 4Q12. The reduction in sales and marketing expenses from 4Q12 was due mainly to a pause in new smartphone game launches during the period.

General and administrative expenses in 1Q13 were US$ 2.43 mn compared to US$ 3.18 mn in 4Q12. The decrease in general and administration expenses was mainly due to a decrease in share based compensation expenses. 

The Company's total headcount increased in 1Q13 to 1,132 compared to 1,100 at the end of 4Q12. The increase in headcount is associated with our recruitment of new staff for our 2013 game pipeline.

Operating Income

Operating income for 1Q13 was US$ 5.62 mn compared to a US$ 3.71 mn operating income in 4Q12 and US$ 6.09 mn in the same period last year. 1Q13 operating margin was 11.7% compared to 8.7% in 4Q12.

Earnings

Net income and Non-GAAP net income in 1Q13 were US$ 6.81 mn and US$ 8.90 mn, respectively.  Diluted income per ADS and diluted Non-GAAP earnings per ADS were US$ 0.16 and US$ 0.21 in 1Q13, respectively.

Total ADS on a diluted basis outstanding during 1Q13 were 41.85 mn, compared to 42.43 mn outstanding during 4Q12.

For the purpose of earnings

per share calculation

Number during three

months ended

December 31, 2012

Number during three

months ended

March 31, 2013

ADS (in mns)

41.58

40.74

Add: Dilution impact from options and nonvested shares

0.56

0.50

Warrants issued to business partners

0.29

0.61

ADS on diluted basis

42.43

41.85

Balance Sheet

As of March 31, 2013, the Company had US$ 185.23 mn in cash and cash equivalents, term deposits, held-to-maturity securities and restricted cash or US$ 4.55 per basic ADS in cash and cash equivalents, term deposits, held-to-maturity securities and restricted cash.

Stock Repurchase:

In October 2012, the Board of Directors authorized the Company to repurchase up to another US$ 20 million worth of the Company's ADSs. The share repurchase plan calls for the ADSs to be acquired in the open market from time to time depending upon market conditions, the market price of Company's ADSs and the management's assessment of the Company's liquidity and cash flow needs. The repurchase plan is intended to increase shareholder value and reduce the dilutive effect of the Company's equity incentive plans.

As of April 9th, 2013, 1,955k ADSs, representing 78.21 mn ordinary shares of the Company, were repurchased at an average price of US$ 6.14 per ADS for a total repurchase amount of US$ 12.00 mn.

Business Outlook (For the 3-month period ending June 30, 2013):

The Company expects total revenues for 2Q13 to be within the range of US$ 43.5 mn to US$ 44.5 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 15 mn, mobile game revenues of US$3.5 mn and Net Game revenues of US$ 25.5 mn

The Company expects total gross profit to be within the range of US$ 17 mn to US$ 18 mn, total operating profit to be US$ 5.5 mn to US$ 6.5 mn, net profit to be US$ 5.5 mn to US$ 6.5 mn, and Non-GAAP net profit is expected to be US$ 6.5 mn to US$ 7.5 mn.

Conference Call:

The Company's management team will conduct a conference call at 7:30 am Beijing time on May 22nd 2013 (19:30 pm Eastern time and 16:30 pm Pacific time on May 21st, 2013).  A webcast of this conference call will be accessible on the Company's web site at http://ir.kongzhong.com.

 

KongZhong Corporation

Condensed Consolidated Statements of Comprehensive Income

(US$ in thousands, except per share and share data)

(Unaudited)



For the Three

Months Ended

March 31,

2012


For the Three

Months Ended

December 31,

2012


For the Three

Months Ended

March 31,

2013







Revenues

$43,841


$42,631


$47,937

Sales tax

1,381


1,412


1,822

Cost of revenues

23,713


23,218


27,522

Gross profit

18,747


18,001


18,593

Operating expenses






    Product development

4,080


5,325


6,136

    Sales and marketing

5,712


5,926


4,568

    General and administrative

2,862


3,179


2,426

Total operating expenses

12,654


14,430


13,130

Government subsidy

-


143


153

Operating income

6,093


3,714


5,616

Interest income

1,276


1,176


1,452

Interest expense 

63


-


57

Imputed interest on long-term

payables 

-


150


150

Exchange gain

-


388


158

Investment income 

589


42


-

Income before tax expense

7,895


5,170


7,019

Income tax expense

1,037


400


214

Net income 

$6,858


$4,770


$6,805







Basic earnings per ADS

$0.17


$0.11


$0.17

Diluted earnings per ADS

$0.16


$0.11


$0.16

Weighted average ADS

outstanding (million)

41.03


41.58


40.74

Weighted average ADS used in

diluted EPS calculation (million)

41.91


42.43


41.85







Net income 

$6,858


$4,770


$6,805

Other comprehensive income 

209


2,195


903

Total comprehensive income 

$7,067


$6,965


$7,708

 


KongZhong Corporation

Condensed Consolidated Statements of Cash Flows

(US$ in thousands)

(Unaudited)






For the Three  

Months Ended

March 31, 2012


For the Three  

Months Ended

March 31, 2013

Cash Flows From Operating Activities




Net  income

$ 6,858


$ 6,805

Adjustments to reconcile net income to net cash




provided by operating activities




Depreciation and amortization

1,136


1,825

Gain on disposal of property and equipment

(6)


-

   Share-based compensation

1,150


556

Amortization of the debt discount

36


-

   Changes in operating assets and liabilities

6,050


6,444

Net Cash Provided by Operating Activities

15,224


15,630





Cash Flows From Investing Activities




Acquisition of business

(3,000)


-

Purchase of property and equipment

(313)


(935)

Loans repayment from third party

22,190


-

Purchase of term deposits

-


(16,413)

Purchase of  held-to-maturity securities

(74,489)


(13,202)

Proceeds from disposal of held-to-maturity securities

14,603


16,323

Long-term investment

(2,000)


-

Restricted cash

-


(10,351)

Proceeds from disposal of property and equipment

6


-

Net Cash Used in Investing Activities

(43,003)


(24,578)





Cash Flows From Financing Activities




Proceeds from exercise of share options

49


55

Deferred payments for acquisition of business

-


(3,000)

Deferred payments of intangible assets

-


(500)

Stock repurchase

(1,587)


(9,341)

Short-term bank loan

-


9,000

Net Cash Used in Financing Activities

(1,538)


(3,786)





Effect of foreign exchange rate changes

739


171





Net (decrease) increase in Cash and Cash Equivalents

(28,578)


12,563

Cash and Cash Equivalents, Beginning of Period

129,512


120,695

Cash and Cash Equivalents, End of Period

100,934


108,132

 

KongZhong Corporation

Condensed Consolidated Balance Sheets

(US$ in thousands)

(Unaudited)








As of

March 31,

2012


As of

December 31,

2012


As of

March 31,

2013







Cash and cash equivalents

$100,934


$120,695


$108,132

Term deposits

-


-


16,441

Held-to-maturity securities

77,259


17,465


14,396

Trading securities

2


-


-

Loans to third party

-


-


-

Accounts receivable (net)

20,722


23,700


20,952

Restricted cash

-


-


10,369

Other current assets

4,948


4,718


5,223

Total current assets

203,865


166,578


175,513







Rental deposits

512


748


738

Intangible assets (net)

5,260


75,069


76,896

Property and equipment (net)

3,384


3,065


3,584

Long-term investments

2,000


4,000


4,000

Goodwill

87,456


87,551


87,843

Restricted cash

-


35,773


35,891

Total assets

$302,477


$372,784


$384,465







Accounts payable (including accounts

payable of the consolidated variable interest

entities ("VIE") without recourse to

KongZhong Corporation of $13,049,

$42,327 and $49,006 as of March 31, 2012,

December 31, 2012 and March 31,2013,

respectively)

$13,052


$42,612


$49,215

Deferred revenue (including deferred

revenue of the  consolidated VIE without

recourse to KongZhong Corporation of 

$3,530,$3,585 and $3,622 as of March 31,

2012, December 31, 2012 and March 31, 2013,

respectively)

4,542


3,785


3,744

Short term bank loan

-


-


9,057

Other current liabilities (including other

current liabilities of the consolidated VIE

without recourse to KongZhong Corporation

of $9,375, $9,435  and $9,350 as of March 31,

2012, December 31, 2012 and March 31,2013,

respectively)

30,698


24,833


21,779

Total current liabilities

48,292


71,230


83,795







Non-current deferred tax liability

(including non-current deferred tax liability

of the consolidated VIE without recourse to

KongZhong Corporation of $61, $10 and $3

as of March 31, 2012, December 31, 2012

and March 31,2013, respectively)

61


10


3

Other long-term liabilities (including

other long-term liabilities of the

consolidated VIE without recourse to

KongZhong Corporation of nil, $18,660 and

$18,814 as of March 31, 2012, December 31,

2012 and March 31,2013,  respectively)

-


18,660


18,814

Total liabilities

$48,353


$89,900


$102,612







Shareholders' equity

254,124


$282,884


$281,853

Total liabilities and shareholders' equity

 

$302,477


$372,784


$384,465

 

Non-GAAP Financial Measures

To supplement the unaudited condensed statements of comprehensive income presented in accordance with US GAAP, the Company uses non-GAAP financial measures (Non-GAAP Financial Measures) of net income and net income per diluted ADS, which are adjusted from results based on GAAP to exclude certain infrequent or unusual or non-cash based expenses, gains and losses. The Non-GAAP Financial Measures are provided as additional information to help both management and investors compare business trends among different reporting periods on a consistent and more meaningful basis and enhance investors' overall understanding of the Company's current financial performance and prospects for the future.

The Non-GAAP Financial Measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.  In addition, the Company's calculation of the Non-GAAP Financial Measures may be different from the calculation used by other companies, and therefore comparability may be limited.

For the periods presented, the Company's non-GAAP net income and non-GAAP net income per diluted ADS exclude, as applicable, the amortization of intangibles, share-based compensation expense, interest expense on convertible note, imputed interest on long-term payables, as well as is adjusted for the dilution impact on ADS numbers from convertible note, stock options, non-vested shares and warrants.

Reconciliation of the Company's Non-GAAP financial measures to the GAAP financial measures is set forth below.


 

For the Three

Months Ended

March 31,

2012

(US$ in thousands,
except per share

and share data)


For the Three

Months Ended

December 31,

2012

(US$ in thousands,

except per share

and share data)


For the Three

Months Ended

March 31,

2013

(US$ in thousands,

except per share

and share data)

GAAP net income

$6,858


$4,770


$6,805

Share-based compensation

1,150


1,022


556

Interest expense on

convertible note

63


-


-

Imputed interest on

long-term payables

-


150


150

Amortization of intangibles

585


1,798


1,386

Non-GAAP net income

$8,656


$7,740


$8,897







Weighted average ADS

used in diluted

 

41.91


42.43


41.85

Non-GAAP diluted net

income per ADS

 

$0.21


$0.18


$0.21

 

About KongZhong:

We are one of the leading providers of digital entertainment services for consumers in the PRC. We operate three main business units, namely WVAS, mobile games and Internet games. We are one of the leading providers of WVAS to mobile phone users and have been in cooperation with all major telecommunications operators in the PRC since 2002. In 2005, we began providing feature-phone mobile games on the networks of China Mobile with the acquisition of Tianjin Mammoth, a feature phone mobile games developer. To further expand our mobile games development capabilities, we acquired Noumena in 2013 in order to develop smartphone mobile games on smartphone mobile operating systems, such as iOS and Android. We commenced our Internet games business in 2010 through our acquisition of Dacheng, a developer and operator of Internet games in the PRC. In addition to developing and operating our self-developed Internet games, such as Loong, Demon Code and Kung Fu Hero, we are the exclusive operator of the popular World of Tanks game for the PRC Internet games market. In May 2013, KONG entered into a strategic partnership with Wargaming.net's granting KONG exclusive rights to all of Wargaming.net's future games in mainland China, including but not limited to World of Tanks, World of Warplanes and World of Warships. In addition, KONG is the also the exclusive China partner for Guild War 2 from ArenaNet, Offensive Combat from U4iA Games and Hawken from Meteor Entertainment.

Safe Harbor Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding trends in the wireless value-added services, wireless media, mobile games and online games industries and our future results of operations, financial condition and business prospects.  Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them.  These statements involve risks and uncertainties, and actual market trends and our results may differ materially from those expressed or implied in these forward looking statements for a variety of reasons.  Potential risks and uncertainties include, but are not limited to, continued competitive pressure in China's wireless value-added services, wireless media, mobile games and online games industries and the effect of such pressure on revenues; our ability to develop new products that are commercially successful; unpredictable changes in technology, consumer demand and usage preferences in the markets we operate; our ability to protect our intellectual property rights; the short operating history of certain of our business segments, in particular the online games segment;  the state of and any change in our relationship with China's telecommunications operators; our dependence on the billing systems of telecommunications operators for our performance; the outcome of our investment of operating income generated from the WVAS segment into the development of our wireless Internet, mobile games and online games segments; changes in the regulations or policies of the Ministry of Industry and Information Technology and other government authorities relevant to our businesses; and changes in political, economic, legal and social conditions in China, including the Chinese government's policies with respect to economic growth, foreign exchange, foreign investment and entry by foreign companies into China's telecommunications and online games markets.  For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission.  We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.

SOURCE KongZhong Corporation



RELATED LINKS
http://www.kongzhong.com

Featured Video

Journalists and Bloggers

Visit PR Newswire for Journalists for releases, photos, ProfNet experts, and customized feeds just for Media.

View and download archived video content distributed by MultiVu on The Digital Center.

Share with Twitter Share with LinkedIn
 

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

 
 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

 
 

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.

 
Area to test

Online Member Center

Not a Member?
Click Here to Join
Login
Search News Releases
Advanced Search
Search
  1. PR Newswire Services
  2. Knowledge Center
  3. Browse News Releases
  4. Contact PR Newswire
  5. Send a News Release